7 Steps to Avert Becoming a “Bag Lady”
Life’s circumstances can change in a blink of an eye and you can suddenly find yourself living in different shoes. Many women, both those who are wealthy and those who are a little less so, fear becoming penniless and homeless as they get to retirement age.
In a poll of 2,200 women between the ages of 25 and 75, Allianz found that half of all American women share a fear of becoming a “Bag Lady.” This phenomenon, known as the “Bag Lady Syndrome” is one where women are afraid of losing their financial independence.
These fears are not unwarranted. Historically, women earn less than men during their lifetime and may therefore have less money left over for savings. And, according to the survey, women who were the primary breadwinners for their households are the most prone to having these types of fears.
Lance Drucker, CEO and president of the New York City-based Drucker Wealth Management, outlines seven action steps women can take to address their financial insecurity. Drucker says:
- Ask yourself questions. What keeps me up at night? What worries me most about my money and my future? What do I want to do with the rest of my life? When can I afford to retire? Can I afford to stay retired? Can I travel, change careers, or go back to school? The answers will help you identify your pain and your goals.
- Create a budget. The ultimate goal of retirement planning is to create an income stream that will sustain and support your needs throughout your golden years. If you haven’t already, create a budget. Doing so will help you see where your money is going. Include long and short-term goals, fixed and variable monthly costs as well as one-time expenses. Start building a cash cushion that will cover six to nine months of fixed expenses.
- Create a balance sheet of savings and investments. This includes your savings account, stocks, bonds, mutual funds, investment real estate, cash value life insurance, annuities, retirement accounts, individual retirement accounts, 401 (k) plans and other assets. Then further break it down by pre-tax and post-tax-accounts.
- Review insurance coverage and needs. Are you supporting anyone else? Is there a need for Life Insurance? Who will take care of you if you get sick? Do you have Long Term Care Insurance? One mother can raise 10 kids, but 10 kids can’t take care of one mother… Younger and healthier women may be tempted to overlook the importance of this step, but failure to anticipate potential health issues can be very expensive.
- Address your estate-planning needs. Create a will. Have a durable power of attorney or a health care proxy. If you haven’t already, update your beneficiary designations on your retirement accounts. Consider whether it makes sense to put your assets in a trust to avoid probate.
- Invest with a strategy in place. Is there a purpose to your current investment approach, or are you just accumulating funds? A professor at Wharton Business School recommends using “the 4 bucket approach to help you accumulate funds.
- Enlist the help of a financial adviser. Having a trained professional help you take care of your financial house will motivate and help you stick to your plan. Studies have shown that investors who utilize a high quality financial advisor feel more confident, optimistic, and are significantly more likely to stick to their plan as opposed to do-it-yourself investors.